How does social media shape purposeful business?

Senior Consultant

Society is playing a growing role in shaping the way that businesses operate. Reflecting this, online communities have become platforms to highlight good and bad business practice and help people coordinate responses. To what extent does this pressure influence core business operations? Can social media truly help to redefine the purpose of an organisation—and therefore the future of business? Tim Hogg, a behavioural economist at Oxera, takes a look at the role of social media in the context of thinking Beyond the Bottom Line.

A sea change in communication

From praise for a new marketing campaign to heavy criticism of sweatshop labour or disastrous private data leaks, engaged consumers, politicians and journalists harness social media to expose the full range of stakeholder outcomes generated by firms. As we explore below, people care greatly about how an organisation’s actions affects groups beyond its shareholders.

Social media networks and other online forums have made the world smaller. Online communities demand to understand the way that organisations conduct themselves—and to be able to respond to it—whether they live on the other side of town or the other side of the world.

Online communities are global; news spreads fast on social media, and its highly visual format requires little translation. When a firm fails to live up to its purpose or brand values, trouble soon follows.

Information is now disseminated at the speed of light. In some ways, businesses exert less control over the news agenda and how it’s delivered to consumers. For example, there’s no longer a grace period between news cycles; this began to disappear in the 1980s with the launch of CNN, but it has now vanished. Content is written, delivered, consumed, and challenged constantly.

Social media posts can be sliced and diced in many ways to suit the intended recipients—they can be memes, 30-second subtitled videos, or even a series of tweets.

On the other hand, businesses can leverage this rapid and constant communication to mislead consumers, and risk falling foul of consumer protection law as a result.

The behavioural economics perspective

As a behavioural economist, I see social media as appealing to our ‘fast’ System 1 thinking. It doesn’t require a great deal of mental effort to comprehend the information on social media, which has some obvious benefits—but this has also led to a more troublesome phenomenon.

One piece of information can quickly swirl around Twitter as people repost it—fired into action by the amygdala, the brain’s rapid-response emotion centre—turning one tweet in the crowd into a chorus of many thousands, a vast echo chamber. However, it’s all too easy to retweet without thinking about the real issues at play.

A domino effect

Examples abound where brands have failed to understand sustainability and employee rights issues in their own supply chain. The consequence is often a firestorm of negativity played out across social media channels and other online forums.

Some businesses have embraced social media positively. Ethical clothing company Patagonia actively takes to social platforms to vaunt its commitment to environmental activism, and claims to have enjoyed growth as a result of doing so.

It’s clear that social media can be hugely influential in terms of marketing, operations and results. More than a fifth of UK consumers told YouGov that they have actively boycotted a brand due to poor publicity (including social media commentary).

Online communities don’t just facilitate information-sharing. Crucially, they help people and communities to coordinate their responses—often with wide-ranging impacts. These can include boycotting a firm because it is perceived to have low ethical standards, signing a petition so that the issue hits the headlines (or is even debated in parliament), or sharing the information further to maximise damage to the brand.

Behavioural economics helps us to understand these phenomena. For example, our understanding of the biases of herd behaviour and social norms tells us that people tend to herd together, and that they may behave in accordance with their ‘group’ in order to feel like they fit in. Obeying social norms is often our default response—and the implications for social media are fascinating.

Social media demands its own strategy

There are some caveats to the power of social media to take on and reshape business. First, online communities can be divided. In 2018, several charities, including Greenpeace and International Animal Rescue, took to social media to decry the use of palm oil in vast amounts of consumer products. While environmental protestors were quick to fan the flames, just as many people jumped online to point out that banning the oil’s use could actually make deforestation worse (as the manufacture of alternative oils might be even more destructive to forests in the long term). We should recognise that online communities may not be representative of the wider population.

The other caveat is ‘fake news’, which erodes trust in online sources of information. According to a study by YouGov and the University of Oxford’s Reuters Institute for the Study of Journalism, 70% of UK consumers—the fourth-highest proportion in nearly 40 markets surveyed—are unsure what is real or fake in terms of online news sources. Moreover, 58% of UK citizens now actively avoid the news.

So what?

The above goes to show that it’s important for firms to have a clear corporate purpose—and that there’s no friction between that purpose and the firm’s social media strategy.. Understanding how and when social media might affect your operations is key; leaving audiences to their own devices is a bold strategy indeed.

The advent of social media has meant that the outcomes firms deliver for all their stakeholders are now far more transparent. People and communities care about these outcomes; what’s more, they can employ social media to more easily and quickly coordinate collective responses. In other words, social media is an example of a powerful feedback loop for encouraging purposeful business.

That leaves us with three implications. Here they are, along with my take on how to mitigate them:

The sustainability of different business models is increasingly impacted by online communities. Ask yourself the key question: ‘How robust is our business model to deal with greater social media transparency and consumer coordination?’

It’s not enough for an organisation to simply have a corporate purpose; it has to ensure that the actions it takes and the way it communicates are aligned with that purpose. A corporate social responsibility fig leaf on Twitter, for example, is unlikely to cover a multitude of sins. To deal with this issue, your organisation should carefully assess its actions against its stated corporate purpose—for example, by using behavioural economics insight to predict and explain trends in consumer welfare.

Finally, recognise that considering your firm’s impact on all stakeholders is no longer a ‘nice to have’; it’s a must. The risk of a damaging social media reveal and subsequent coordinated boycott is the new normal. The time is now to carefully examine your firm’s impact on all of its stakeholders.

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